The opinion
T.C. Memo. 2003-328
UNITED STATES TAX COURT
JERRY D. CRINER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7126-02L. Filed November 25, 2003.
Jerry D. Criner, pro se.
Bruce K. Meneely, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
MARVEL, Judge: On March 28, 2002, respondent mailed to
petitioner a Notice of Determination Concerning Collection
Action(s) Under Section 63201 and/or 6330 (notice of
1
Section references are to the Internal Revenue Code of
1986, as amended and in effect at the time the petition was
filed.
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determination) for unpaid Federal income tax liabilities of
petitioner for 1990 through 1993. In response to that notice and
pursuant to sections 6320 and 6330(d), petitioner timely
petitioned this Court to review the determination to proceed with
collection by filing a nominee Notice of Federal Tax Lien (NFTL).
The issue for decision is whether the Appeals Office abused
its discretion in upholding respondent’s filing of a nominee NFTL
in this case.
FINDINGS OF FACT
Background
Petitioner resided in Claremore, Oklahoma, when he filed his
petition in this case.
From 1975 to 1996, approximately, excluding the periods of
time that he was incarcerated, petitioner derived at least some
portion of his income from cheating at gambling. By his own
estimate, since 1975, petitioner has earned substantial income by
cheating at gambling.
At various times during the 1980s through the mid-1990s,
petitioner was prosecuted in Nevada, New Jersey, and Oklahoma for
money laundering, structuring monetary transactions, felony theft
by deception, possession of slot machine cheating devices, fraud,
and burglary, and he served time in prison. In connection with
the Nevada prosecution, petitioner was arrested in Tulsa,
Oklahoma, on May 13, 1987. Petitioner had at least $30,000 in
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cash in his possession at the time of his May 13, 1987, arrest.
Sometime during 1984 or 1985, petitioner established the
Wesley Brown Society, allegedly an Oklahoma corporation.
Petitioner was the president and sole owner of the Wesley Brown
Society. Petitioner bought and sold real estate through the
Wesley Brown Society, purchasing at least four properties and
recording the title to those properties in the name of the Wesley
Brown Society. Petitioner also purchased a car, registering it
in the name of the Wesley Brown Society as lessee. The Wesley
Brown Society did not file Federal or State tax returns.
Petitioner does not have a checking account and does not
maintain any tax or financial records. Petitioner pays his
living expenses with money orders or out of accounts titled in
the names of family members.
The Claremore Property
The property where petitioner and his family reside is
located at 20154 Carefree Valley Drive, Claremore, Oklahoma
74017-91012 (the Claremore property). The Claremore property
consists of a large, two-story house on 8.5 acres, located about
15 minutes by car outside the city of Claremore, Oklahoma. The
2
The Claremore property address is also shown as Route 2,
Box 2-3, Claremore, Oklahoma 74017-9101. The legal description
of the property is shown on the amended Notice of Federal Tax
Lien as “Lot 3 in Block 2 of Amended Plat of Carefree Valley, an
addition in Section 8, Township 21, North Range 17 East of the
I.B.&M., Rogers County, Oklahoma, according to the recorded Plat
thereof.”
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Claremore property was purchased on April 3, 1987, from James T.
and Virginia L. Arnold for $135,000 and was titled in the name of
Alice Criner, petitioner’s mother. No mortgage was recorded
against the property in connection with the 1987 purchase. The
record in this case contains no evidence of the source of the
funds used to purchase the Claremore property in 1987.3
When the Claremore property was purchased in 1987, Alice
Criner was in her mid-sixties. She had worked for St. John’s
Hospital for approximately 30 years. When Alice Criner retired
sometime in the early 1980s, she was a cafeteria supervisor. In
1987, Alice Criner’s income consisted of retirement benefits from
St. John’s Hospital and possibly Social Security benefits.
Alice Criner lived in the Claremore property for an unknown
length of time between April 1987 and 1989. She never owned a
car and did not know how to drive. For the last few years of her
life, Alice Criner suffered from advanced-stage Parkinson’s
disease. Sometime between April 1987 and her death in 1989,
Alice Criner became too ill to live at the Claremore property and
was moved into a care facility in Broken Arrow, Oklahoma. Alice
Criner died intestate on August 21, 1989. Each of Alice Criner’s
six children received approximately $1,400 in death benefits from
a life insurance policy as a result of her death.
3
Alice Criner’s daughter, Jeannie McLelland, testified that
she did not know where her mother would have gotten the funds to
purchase the Claremore property in 1987.
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Petitioner lived at the Claremore property “many times”
before taking up permanent residence there in 1995. For example,
petitioner, his wife, and their two children resided at the
Claremore property from January 1988 through April 23, 1990, and
again from April 1, 1992, through June 13, 1993. Petitioner has
taken care of the Claremore property since at least 1989 and has
improved the property from time to time. For example, he
constructed a pond and installed a spa on the Claremore property.
Petitioner also has maintained, and continues to maintain,
utility accounts with respect to the Claremore property. For
example, in order for a property owner in Rogers County,
Oklahoma, to obtain water rights, he or she was required to
submit proof of his or her property ownership to the Rural Water
District No. 7 in Rogers County, Oklahoma. On May 1, 1987, Rural
Water District No. 7 in Rogers County, Oklahoma, issued a benefit
unit certificate for water rights to petitioner for the Claremore
property. On May 1, 1987, petitioner became the tap owner with
respect to the Claremore property. Petitioner also has an
account with Verdigris Valley Electric Cooperative with respect
to the Claremore property.4
On April 27, 1993, petitioner purchased a cashier’s check in
the amount of $6,292.91, payable to the Rogers County Treasurer
4
The Claremore property account with Verdigris Valley
Electric Cooperative has never been listed under the name of
Alice Criner.
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for ad valorem property taxes on the Claremore property for 1989,
1990, 1991, and 1992. Petitioner also paid the 1993 ad valorem
property taxes on the Claremore property with a check drawn on
the account of “Cass Criner, a minor, Jerry Criner, custodian,
UTMA”. On November 29, 2000, petitioner’s 18-year-old son,
Candon Criner, purchased a cashier’s check in the amount of
$1,233.86, payable to the Rogers County Treasurer. At that time,
Candon Criner probably was not living at the Claremore property
and would not have had the money to buy the cashier’s check
without petitioner or one of petitioner’s brothers or sisters
giving him the funds.
Petitioner’s Tax Liabilities
Petitioner did not file Forms 1040, U.S. Individual Income
Tax Return, for 1990 through 1993. Petitioner signed a Form 870,
Waiver of Restrictions on Assessment and Collection of Deficiency
in Tax and Acceptance of Overassessment, on July 31, 1996,
consenting to the assessment of deficiencies in income tax and
additions to tax under section 6651(a)(1) for 1990 through 1993.
Respondent assessed the deficiencies in income tax and the
additions to tax under section 6651(a)(1) for 1990 through 1993
on September 9, 1996.
On December 4, 2001, petitioner’s collection matter was
assigned to Revenue Officer Dale Baustert. Mr. Baustert’s review
of the file revealed that collection actions had been initiated
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against condominiums allegedly owned by petitioner in New Jersey
and were still pending and that a request for a nominee NFTL with
respect to the Claremore property had not been completed.
On December 11, 2001, Mr. Baustert submitted a memorandum
requesting authorization to file a nominee NFTL against the
Claremore property to the Office of District Counsel in Oklahoma
City, Oklahoma (Counsel). The memorandum request was sent
through Dale Spannagel, group manager. In the memorandum, Mr.
Baustert outlined the facts that formed the basis for his belief
that petitioner was the equitable owner of the Claremore
property: (1) No mortgage was recorded when the Claremore
property was ostensibly purchased by Alice Criner, indicating a
cash purchase; (2) petitioner had a long history of placing real
and personal property in nominee names of his family members and
the Wesley Brown Society; (3) on April 26, 1990, petitioner’s ex-
wife recorded a quitclaim deed divesting herself of any interest
that she had in the Claremore property; (4) Rogers County
Treasurer’s records indicate that petitioner, his wife, and their
children have paid the ad valorem property taxes on the Claremore
property; and (5) petitioner claimed to have “an arrangement”
with his siblings to watch after the home, but he did not produce
any affidavits from them when asked to do so by the revenue
officer. The memorandum also noted that the Claremore property
was listed for sale with Peck Realty for an asking price of
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$179,000.
On January 15, 2002, Counsel issued an advisory opinion to
Revenue Officer Baustert approving his request to file a nominee
NFTL against the Claremore property. The January 15, 2002,
opinion listed the following facts in support of its conclusion
authorizing the filing of a nominee NFTL: (1) The Claremore
property was purchased free and clear at a time when petitioner
had considerable amounts of cash that he had earned illegally;
(2) title to the Claremore property is in the name of a close
relative, i.e., petitioner’s mother; (3) petitioner had admitted
to a revenue officer that he owns a partial interest in the
Claremore property; (4) petitioner had paid the property taxes on
the residence and had lived in the residence for many years; (5)
petitioner has a history of placing property that he owns in the
names of other persons or entities; (6) petitioner failed to
produce affidavits from his brothers and sisters confirming under
oath that they have an ownership interest in the Claremore
property; (7) petitioner’s ex-wife filed a quitclaim deed
releasing any ownership interest that she held in the property in
April 1990; and (8) Counsel had already authorized on similar
facts the filing of a nominee NFTL against certain New Jersey
condominiums titled in the name of petitioner’s wife.
On January 17, 2002, Mr. Baustert filed a nominee NFTL
against the Claremore property with the County Clerk, Rogers
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County, Claremore, Oklahoma. On January 31, 2002, Mr. Baustert
filed a corrected NFTL against the Claremore property with the
County Clerk, Rogers County, Claremore, Oklahoma. Both the
original and the corrected NFTL identified the “Claremore
property” and listed the taxpayer as “Alice Criner as the Nominee
of Jerry D. Criner”.
On January 17, 2002, respondent mailed to petitioner a
“Notice of Federal Tax Lien Filing and Your Right to a Hearing
Under IRC 6320” covering 1990 through 1993. On January 30, 2002,
petitioner timely submitted Form 12153, Request for a Collection
Due Process Hearing, requesting a hearing under section 6320 (the
hearing). In his request for a hearing, petitioner stated that
he disagreed with the nominee NFTL because the Claremore property
belonged to his deceased mother.
In a letter to petitioner dated February 20, 2002,
Settlement Officer Scott Penny (Mr. Penny or hearing officer)
acknowledged receipt of petitioner’s hearing request and asked
petitioner to provide documentation to substantiate his claim
that the Claremore property listed in the nominee NFTL belonged
to his deceased mother. Mr. Penny specifically requested
documentation showing Alice Criner’s ability to purchase the
property for $135,000 in April 1987, probate records showing
distribution of Alice Criner’s estate, and any other
documentation to support petitioner’s claim. In the February 20,
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2002, letter, Mr. Penny noted that, based on his review of
petitioner’s file, it appeared that all legal and administrative
procedures were met by respondent in filing the NFTL against
Alice Criner as nominee of petitioner.
On February 25, 2002, petitioner sent a letter to Mr. Penny
expressing concern that Mr. Penny had already come to a
conclusion regarding the validity of the nominee NFTL without
“seeing, hearing or reviewing” petitioner’s proof that he did not
own the Claremore property. Petitioner also expressed doubt that
a person employed by the Internal Revenue Service (IRS) or any
other branch of the Federal Government could review the evidence
and reach a fair and impartial ruling. Petitioner also advised
Mr. Penny that he wanted to record the hearing, and he inquired
as to whether petitioner and his sister and up to 30 witnesses
would be reimbursed for the expense of attending the hearing.
Petitioner enclosed with the letter Form 2848, Power of Attorney
and Declaration of Representative, designating his sister,
Jeannie McLelland, as his representative.
On March 7, 2002, Mr. Penny sent a letter to petitioner
informing him that the hearing had been scheduled for March 22,
2002, and that, in accordance with petitioner’s request, the
hearing would be recorded but at no cost to the Government. The
letter also stated that, because the hearing was petitioner’s
hearing, witnesses would not be allowed to speak during the
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hearing.5
On March 22, 2002, petitioner and his sister, Jeannie
McLelland, attended the hearing. Among other things, petitioner
and Ms. McLelland placed on the record of the hearing a statement
that they had intended to call approximately 12 witnesses but
that they were told by Mr. Penny before the hearing that their
witnesses could not appear and testify. Mr. Penny acknowledged
their statement and did not deny its accuracy, but he also
reminded petitioner of his request for testimony in the form of
affidavits under oath. During the hearing, Mr. Penny also
explained that he had reviewed the information in petitioner’s
case file and had verified that all applicable laws and
administrative procedures governing the filing of a nominee NFTL
had been met.
During the hearing, petitioner argued that his deceased
5
Petitioner did not raise any issue regarding Mr. Penny’s
apparent prohibition of live testimony from witnesses at the
hearing or at the trial before this Court. Petitioner did not
argue in his trial memorandum or posttrial brief that the
prohibition regarding live testimony deprived him of a fair
hearing. Moreover, we note that, although Mr. Penny specifically
requested, before the hearing, that petitioner bring to the
hearing affidavits under oath from each of his siblings to
document his claim that they own interests in the Claremore
property, petitioner failed to do so. We conclude on these facts
that the prohibition with regard to live testimony at the hearing
did not deprive petitioner of the opportunity to present relevant
testimony through affidavits under oath. Petitioner could have
made a factual record in support of his position by submitting
affidavits from his witnesses at the hearing, but petitioner
failed to do so.
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mother owned the Claremore property and that, therefore, the
nominee NFTL was unlawful. Petitioner and Jeannie McLelland
explained that their mother had died without a will, that she had
left the property to her six children, that her estate had not
gone through probate, and that the property would remain in her
name forever. Petitioner conceded, however, that he owned a one-
sixth interest in the Claremore property by virtue of his
mother’s death. At the hearing, Mr. Penny again asked for
documentation showing the ability of petitioner’s mother to
purchase the Claremore property in 1987 without the encumbrance
of a mortgage, but petitioner did not produce the requested
documentation at the hearing or at any time after the hearing.
Petitioner also argued at the hearing that the assessments
against him for 1990 through 1993 were invalid because he had
rescinded his signature on the Form 870. Petitioner did not
raise any spousal defenses or propose any specific collection
alternatives during the hearing.6
On March 28, 2002, respondent’s Appeals Office issued a
notice of determination in which it determined the following:
1. All legal and administrative procedures for filing a
nominee NFTL were met.
2. The Appeals officer had had no prior involvement with
6
Petitioner had previously filed two offers in compromise
which respondent either rejected or requested be withdrawn.
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respect to petitioner’s 1990 through 1993 income tax liabilities.
3. Petitioner did not raise any spousal defenses during
the hearing, and, consequently, none were considered.
4. Petitioner had signed a Form 870 agreeing to the
assessment of the 1990 through 1993 income tax deficiencies and
waiving his right to judicial review, thereby precluding any
challenge to the amount of the underlying liabilities.7
5. All legal and administrative requirements for the
filing of a nominee NFTL, including the requirement to request
and obtain Counsel’s approval, had been satisfied. Counsel’s
approval of the NFTL was based on documentation sufficient to
show that petitioner was the sole owner of the Claremore
property. Moreover, petitioner had admitted during the hearing
that he owned an interest in the Claremore property.
6. No collection alternatives were discussed because an
agreement could not be reached regarding the extent of
petitioner’s ownership interest in the Claremore property.
7. The filing of the nominee NFTL balanced the need for
efficient collection of taxes with the legitimate concern of the
taxpayer that the collection action be no more intrusive than
necessary and was appropriate under the circumstances.
7
Petitioner did not contest this part of the Appeals
Office’s determination in his petition, at trial, or in his
posttrial brief. Consequently, we do not address it in this
opinion.
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In response to the notice of determination, petitioner
mailed a letter dated March 30, 2002, to this Court that this
Court treated as a timely, but imperfect, petition appealing
respondent’s determination for 1990 through 1993. By order dated
April 5, 2002, this Court directed petitioner to file a proper
amended petition. On August 1, 2002, petitioner filed an amended
petition in which he alleged as follows:
(a) The Notice of Determination is invalid, as the
Appeals Team Manager whose name appears on the Notice
of Determination did not make a determination that lien
action against Petitioner should be sustained for any
of the years at issue.
(b) The Notice of Federal Tax Lien which forms the
basis of this case is invalid, as the Revenue Officer
whose name appears on the Notice of Federal Tax Lien
was not authorized to file nominee Notices of Federal
Tax Lien without the written approval of his direct
supervisor issued pursuant to §3421 of the Internal
Revenue Service Restructuring and Reform Act of 1998
(RRA ‘98).
(c) The Appeals Officer who conducted Petitioner’s
Collection Due Process (CDP) hearing had prior
involvement in Petitioner’s case, prior to the hearing
taking place, with respect to the tax for the tax
periods covered by the hearing, in violation of I.R.C.
§6320(b)(3), Treasury Regulation §301.6320-1(d)(1), and
Treasury Regulation §301.6320-1(e)(1).
(d) The Appeals Officer who conducted Petitioner’s
CDP hearing determined, before the said hearing was
concluded, that lien action against Petitioner was
appropriate, in violation of I.R.C. §6330(c)(3)(A),
I.R.C. §6330(c)(3)(B), and I.R.C. §6330(c)(3)(C) (each
by and through I.R.C. §6320(e)).
(e) Respondent erred by determining it was
appropriate to cause the filing, against certain real
property, of a nominee Notice of Federal Tax Lien with
respect to Petitioner. Respondent’s determination was
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arbitrary.
(f) Respondent erred by determining that all
applicable laws and administrative procedures to
support his nominee lien action against Petitioner had
been met, although he neither considered the
applicability of the laws of the State of Oklahoma, nor
considered Petitioner’s status under those laws, with
respect to the real property that is the subject of his
nominee Notice of Federal Tax Lien.
(g) Respondent erred by determining that
Petitioner had not proposed reasonable collection
alternatives to Respondent’s lien action.
(h) Respondent erred by not considering, exploring,
or eliciting from Petitioner, what collection actions
less intrusive than lien action would balance the
government’s need to efficiently collect the tax
liabilities at issue with Petitioner’s legitimate
concern that the collection action be made by the
method least intrusive to him.
(i) With respect to the tax liability for the year
1993, Respondent abused his discretion by determining
it was appropriate to cause the filing, against certain
real property, of a nominee Notice of Federal Tax Lien
with respect to Petitioner, when he had already caused
the filing of a Notice of Federal Tax Lien against
Petitioner for the year 1993.
(j) Respondent abused his discretion by asserting
against Petitioner a nominee theory with respect to
specific real property, the existence and ownership of
which was known to Respondent at least four years prior
to the filing of his nominee Notice of Federal Tax
Lien, yet which specific real property was never deemed
by him to be the property of Petitioner.
The errors identified in paragraphs (a), (b), (i), and (j) were
not raised by petitioner at the hearing and were not considered
by the Appeals Office in its notice of determination.
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OPINION
All property and rights to property of a taxpayer become
subject to a lien in favor of the United States on the date a tax
liability is assessed against a taxpayer, if the taxpayer fails
to pay the tax liability after notice and demand for payment.
Secs. 6321 and 6322. Until an NFTL is filed, however, the lien
is without validity and priority against certain persons such as
judgment lien creditors of the taxpayer. Sec. 6323(a).
After the Commissioner files the NFTL, the Commissioner must
provide the taxpayer with written notice of the filing, informing
the taxpayer of his right to request an administrative hearing on
the matter. Sec. 6320(a)(1), (3)(B). If the taxpayer makes a
timely request for an administrative hearing, section 6320(c)
requires that the hearing be conducted pursuant to section
6330(c), (d), and (e). Section 6330(c)(2) provides that a person
may raise any relevant issue relating to the disputed collection
action and may contest the existence or amount of the underlying
tax liability if the person did not receive a notice of
deficiency or did not otherwise have the opportunity to dispute
the underlying tax liability. See also Sego v. Commissioner, 114
T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 180-181
(2000).
Following the hearing, the hearing officer is required to
issue a notice of determination regarding the disputed collection
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action. In the determination, the hearing officer must confirm
that he or she took into consideration the verification presented
under section 6330(c)(1). Sec. 6330(c)(3)(A); sec. 301.6320-
1(e), Proced. & Admin. Regs. In addition, the determination must
take into consideration any issues appropriately raised by the
taxpayer, offers by the taxpayer for collection alternatives, and
whether the disputed collection action represents a balance
between the Government’s need for efficient collection of taxes
and the taxpayer’s concerns regarding the intrusiveness of the
proposed collection action. Sec. 6330(c). If the taxpayer
disagrees with the hearing officer’s determination, the taxpayer
has the right to seek judicial review of the determination by
appealing to this Court or, if this Court lacks jurisdiction over
the underlying tax liability, to a Federal District Court. Sec.
6330(d).
If the taxpayer files a timely petition for judicial review,
the applicable standard of review depends upon whether the
underlying tax liability is at issue. Where the underlying tax
liability is not at issue, the Court will review the Appeals
officer’s determination for abuse of discretion. Sego v.
Commissioner, supra at 610.
In his amended petition, petitioner enumerates a plethora of
“errors” allegedly committed by the Appeals Office in making its
determination upholding the nominee lien filed against the
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Claremore property. Several of the errors involve arguments that
were not raised at the hearing or considered by the Appeals
Office in its notice of determination. We shall divide
petitioner’s alleged errors into two categories--those that were
raised at the hearing and addressed in the notice of
determination and those that were not--and evaluate them
accordingly. Because petitioner concedes that he is not
contesting the underlying tax liabilities, we shall review the
Appeals Office’s determination for abuse of discretion. Id.
A. Errors Raised at the Hearing
The errors listed in the amended petition that were raised
by petitioner, either explicitly and implicitly, at the hearing
and/or addressed in the notice of determination are as follows:
1. Respondent erred in determining that the hearing officer
had no prior involvement with respect to the unpaid tax at issue
in this proceeding.
2. Respondent erred in determining that the requirements of
applicable laws and administrative procedures relative to the
issuance and filing of the nominee NFTL had been satisfied and
that the nominee NFTL was valid.
3. Respondent erred by not considering reasonable
collection alternatives to respondent’s nominee NFTL and by
concluding that the filing of the nominee NFTL balanced
respondent’s need for efficient collection of taxes with
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petitioner’s concern that the collection action be no more
intrusive than necessary.
We consider each of the listed arguments below.
A.1. Impartial Officer
Section 6320(b)(3) provides, in pertinent part, that any
hearing with respect to a lien under section 6320 “shall be
conducted by an officer or employee who has had no prior
involvement with respect to the unpaid tax”. Petitioner alleges
two errors in respondent’s determination regarding the
impartiality of the hearing officer. The first is that the
hearing officer “had prior involvement * * * with respect to the
tax for the tax periods covered by the hearing”, contrary to
section 6320(b)(3), and the second is that the hearing officer
had “determined, before the said hearing was concluded, that lien
action against Petitioner was appropriate”.
Section 6320 requires that any hearing conducted under that
section must be conducted by an impartial officer. Section
6320(b)(3), however, defines an impartial officer as “an officer
or employee who has had no prior involvement with respect to the
unpaid tax specified in section (a)(3)(A) before the first
hearing under this section or section 6330.” The impartiality
requirement ensures that a hearing officer has had no prior
involvement in the determination and assessment of the underlying
tax liability that is the subject of the hearing.
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The record confirms that the hearing officer in this case
did not have any prior involvement with respect to the underlying
tax liability before the hearing. Consequently, respondent did
not abuse his discretion in determining that the section
6320(b)(3) requirement was met.
We also reject petitioner’s assignment of error alleging
that the hearing officer had prejudged the issues raised by
petitioner. Section 6320(b)(3) limits the definition of
“impartial officer” as noted above, and that definition does not
address, and arguably does not permit, a challenge to the
objectivity of the hearing officer who presides over a hearing
under sections 6320 and 6330. However, we shall assume without
deciding, for purposes of this analysis, that sections 6320 and
6330 permit a challenge in appropriate cases to a demonstrably
biased hearing officer. See secs. 6320(c), 6330(c)(2)(A) (A
person may raise at the hearing any relevant issue relating to
the proposed collection action including the enumerated issues).
We have reviewed the transcript of the hearing, and we can
see no evidence of prejudgment or bias. The hearing officer made
an effort to explain to petitioner that petitioner must
demonstrate that the filing of the nominee NFTL was not valid.
It appears that petitioner’s allegation of bias was directed at
the hearing officer’s refusal to invalidate the nominee NFTL
based on evidence that the Claremore property was titled in Alice
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Criner’s name. Petitioner’s allegation of bias is not supported
by the record in this case.
A.2. Validity of the Nominee NFTL
Section 6321 provides:
SEC. 6321. If any person liable to pay any tax
neglects or refuses to pay the same after demand, the
amount (including any interest, additional amount,
addition to tax, or assessable penalty, together with
any costs that may accrue in addition thereto) shall be
a lien in favor of the United States upon all property
and rights to property, whether real or personal,
belonging to such person.
The language of section 6321 “is broad and reveals on its face
that Congress meant to reach every interest in property that a
taxpayer might have.” United States v. Natl. Bank of Commerce,
472 U.S. 713, 719-720 (1985); see also Drye v. United States, 528
U.S. 49, 56 (1999). Among the property interests reached by
section 6321 is an equitable interest owned by or for the benefit
of a taxpayer in property titled in the name of a nominee. G.M.
Leasing Corp. v. United States, 429 U.S. 338, 350-351 (1977);
United States v. Miller Bros. Constr. Co., 505 F.2d 1031 (10th
Cir. 1974). Section 6321 authorizes the Government, among other
things, to file a nominee NFTL against property of a taxpayer in
the hands of an alter ego or nominee. G.M. Leasing Corp. v.
United States, supra at 351.
Petitioner makes a vigorous and sometimes confusing attack
on the nominee NFTL utilized by respondent in this case. As we
understand petitioner’s arguments, they are as follows:
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a. Petitioner’s deceased mother owns the Claremore
property;
b. petitioner does not own an equitable or legal interest
in the Claremore property and did not own such an interest when
the disputed NFTL was filed;
c. even if petitioner is deemed to own an interest in the
Claremore property, it is only a partial interest and a nominee
NFTL should only be used when a taxpayer who is not the owner of
record actually owns all of the property in question;
d. respondent was required to consider, but did not
consider, Oklahoma law in reaching his determination that the
filing of a nominee NFTL was appropriate;
e. even if the filing of a nominee NFTL was arguably
appropriate, respondent did not follow the necessary
administrative procedures in order to file a proper nominee NFTL.
We group these arguments in three categories and address
them below.
a. Petitioner’s Interest in the Claremore
Property
The validity of any lien under section 6321 depends in the
first instance on whether the taxpayer owned property or held an
interest in property to which the lien may attach. Sec. 6321.
Section 6321 does not create property rights but merely attaches
federally defined consequences to rights created under State law.
United States v. Natl. Bank of Commerce, supra at 722.
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Consequently, in order to address petitioner’s arguments, we must
first examine whether the Appeals Office abused its discretion in
determining that petitioner had an interest in the Claremore
property.
While the priority of competing claims to property is
determined under Federal law, whether a taxpayer owns an interest
in, or exercises a right with respect to, property is determined
under State law. Aquilino v. United States, 363 U.S. 509 (1960).
However, “The question whether a state-law right constitutes
‘property’ or ‘rights to property’ is a matter of federal law.”
United States v. Natl. Bank of Commerce, supra at 727; see also
Drye v. United States, supra at 58.
Petitioner argues that he was not the beneficial owner of
the Claremore property under Oklahoma law. He undercut his
argument during the hearing and before this Court, however, by
admitting that he owned an interest in the Claremore property by
reason of his mother’s death. Alice Criner died intestate in
1989 and was survived by six children. Okla. Stat. Ann. tit. 84,
§213B.2.a (West Supp. 2003), provides that, if there is no
surviving spouse, the decedent’s estate is distributed in
undivided equal shares to the surviving children of the decedent
and the issue of any deceased child.8 Under Oklahoma State law,
8
Oklahoma State law also provides that, when a person dies
intestate leaving real property, title to the real property vests
(continued...)
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petitioner, as one of six surviving children of Alice Criner,
inherited an interest in the Claremore property in 1989 when
Alice Criner died. Consequently, we hold that the Appeals Office
did not abuse its discretion in determining that petitioner owned
an interest in the Claremore property.
b. Respondent’s Decision To Use a Nominee NFTL
Petitioner contends that the filing of a nominee NFTL is
inappropriate when a taxpayer owns only a partial interest in the
property. We disagree. A nominee NFTL lien may be used whenever
legal title to property is held by a third party but equitable
ownership, in whole or in part, resides with the taxpayer. G.M.
Leasing Corp. v. United States, supra. It enables the
Commissioner to perfect a lien under section 6323 on property in
which a taxpayer has an interest that is titled in the name of a
third party. Id.; see also Drye v. United States, 528 U.S. 49
(1999) (holding that a disclaimer by the sole heir of an
intestate decedent did not prevent a Federal tax lien with regard
to the heir’s unpaid tax liabilities from attaching to his
inheritance); Wilkinson v. United States, 770 F. Supp. 1085
8
(...continued)
immediately in the decedent’s heirs, subject only to
administration proceedings. The heirs may immediately convey
their interest in such property to another. DeWitt v. Cavender,
878 P.2d 1077 (Okla. Ct. App. 1994); Fessler v. Fariss, 304 P.2d
332, 340 (Okla. 1956); Davis v. Morgan, 95 P.2d 856 (Okla.
1939); see also Okla. Stat. Ann. tit. 84, sec. 213B.2.a. (West
Supp. 2003).
- 25 -
(W.D.N.C. 1991); United States v. Drexler, 60 AFTR 2d 87-5091,
87-2 USTC par. 9493 (E.D. Okla. 1985).
We are aware, of course, that the Appeals Office determined
that petitioner was the sole equitable owner of the Claremore
property.9 Petitioner argues that Oklahoma State law does not
contemplate ownership in nominee form10 and that the Appeals
Office did not consider Oklahoma law in making its determination
upholding the nominee lien. We reject petitioner’s arguments for
several reasons.
First, petitioner concedes that he owns an interest in the
9
At the hearing, petitioner did not offer any of the
information previously requested by Mr. Penny and Revenue Officer
Baustert regarding petitioner’s claim that his siblings had an
interest in the Claremore property. The silence of petitioner’s
siblings undermines petitioner’s claim that each of them owns an
interest in the Claremore property but does not necessarily
prevent them from asserting any ownership right that they may
have. A person who claims an ownership interest in property
subject to a Federal tax lien may bring a quiet title action to
challenge the lien against the property. See 28 U.S.C. sec. 2410
(2000). Generally, the Federal District Courts have jurisdiction
over any civil action arising under any Act of Congress providing
for internal revenue. 28 U.S.C. sec. 1340 (2000).
10
Petitioner’s argument on this point is erroneous as a
matter of Oklahoma State law because the concept of nominee
ownership is recognized thereunder. When legal title to real
property is conveyed to one person and another person furnishes
the consideration for the property, a presumption arises under
Oklahoma State law that the person who furnished the funds to
purchase the property intended to acquire the equitable interest
in that property. Boatright v. Perkins, 894 P.2d 1091 (Okla.
1995). See also 60 Okla. Stat. Ann., tit. 60, sec. 137 (West
1994 & Supp. 2003), which provides that “When a transfer of real
property is made to one person, and the consideration therefor is
paid by or for another, a trust is presumed to result in favor of
the person by or for whom such payment is made.”
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Claremore property, although he disputes that he is the sole
owner as respondent contends. Because of petitioner’s
concession, the hearing officer did not have to review Oklahoma
State law to decide whether petitioner owns the requisite
property interest to which the Federal tax lien in this case
attaches.
Second, a nominee NFTL is a collection device, and a
determination by respondent to use a nominee NFTL is governed by
Federal law, not by Oklahoma State law. See G.M. Leasing Corp.
v. United States, 429 U.S. at 350-351. Only the determination of
whether a taxpayer owns an interest in, or holds rights to,
property is governed by State law. Drye v. United States, supra
at 478; Aquilino v. United States, supra.
Third, even if the hearing officer was required to consider
Oklahoma State law, petitioner has failed to show that he was
prejudiced by any failure on the part of the hearing officer to
do so. Although the transcript of the hearing reflects that the
hearing officer did not research Oklahoma State law, the hearing
officer referred to the substance of intestacy laws of Oklahoma
in his discussions regarding the interest in the Claremore
property that petitioner admits he inherited by reason of his
mother’s death in 1989.
Fourth, Oklahoma State law recognizes the principle of
equitable or beneficial ownership on which the nominee lien is
- 27 -
based. In Carey v. Winslow, 122 P. 174 (Okla. 1912), the
Oklahoma Supreme Court found that, although certain stock was
titled in the name of a third party, the judgment debtor, who had
previously held legal title, had never parted with the beneficial
ownership of the stock. The court held that the stock remained
subject to the judgment debtor’s debts. See also Baxley v.
Timms, 316 P.2d 871 (Okla. 1957), in which the Oklahoma Supreme
Court acknowledged that it was possible for a person to hold bare
legal title to real property while the beneficial interest in the
property remained in another.
We hold, therefore, that the Appeals Office did not abuse
its discretion in determining that a nominee NFTL was a valid and
appropriate collection procedure in this case.
c. Nominee Lien Procedures
Petitioner argues that, even if the use of a nominee NFTL is
an appropriate collection procedure, respondent did not follow
required administrative procedures in obtaining approval to file
the nominee NFTL. Specifically, petitioner contends that
respondent skipped a required review step when Revenue Officer
Baustert forwarded his memorandum requesting authorization to
file the nominee NFTL directly to Counsel.
The Internal Revenue Manual (IRM) requires that, before a
nominee NFTL is filed, the Collection Office must obtain written
approval from Counsel. 2 Administration, Internal Revenue Manual
- 28 -
(CCH), sec. 5.12.1.18.1(3), at 16,836. The request for approval
must show that, while a third party may have legal title to the
property, the taxpayer owns an interest in the property and
enjoys its full use and benefit. See 2 Administration, Internal
Revenue Manual (CCH), sec. 5.17.2.4.8.2, at 17,865. Factors
which the IRM lists as support for the filing of a nominee NFTL
include the following: (1) The taxpayer previously owned the
property,11 (2) the nominee paid little or no consideration for
the property, (3) the taxpayer retains possession or control of
the property, (4) the taxpayer continues to use and enjoy the
property conveyed just as the taxpayer had before such
conveyance, (5) the taxpayer pays all or most of the expenses of
the property, and (6) the conveyance was for tax avoidance
purposes. Id.
In accordance with the procedures outlined in the IRM,
Revenue Officer Baustert submitted a memorandum, dated December
11, 2001, to Counsel, requesting that a nominee NFTL be
authorized with respect to the Claremore property. The
memorandum listed several factors in support of the request that
are enumerated in the IRM. On January 15, 2002, Counsel approved
Revenue Officer Baustert’s request after reviewing the evidence
11
Even if a taxpayer never transferred a particular asset to
the current titleholder, a lien for his taxes may attach to it if
purchased with funds he supplied. E.g., LiButti v. United
States, 107 F.3d 110, 125 (2d Cir. 1997).
- 29 -
supporting his request as well as additional information Counsel
had obtained regarding petitioner’s collection file.
At trial, petitioner argued that the following section in an
ICS transcript12 relating to petitioner’s case proved that Mr.
Baustert did not follow established guidelines in making his
request for approval to file the nominee Notice of Federal Tax
Lien:
Reviewed copy of nominee lien approval received during
ICS downtime – control opened to maintain some advisory
record thereof. Unless something was missed during ICS
downtime, RO submitted request directly to counsel
rather than following usual procedures of routing it
through advisory. As such, there was no advisory
review, record, or control. It is unclear why it was
not sent to counsel through advisory. Although it is
acknowledged that advisory review is not required by
the IRM, it has been established practice here in the
absence of extraordinary circumstances.
The hearing officer testified at trial that he reviewed the ICS
transcript in making his determination. He explained that,
although the advisory group normally reviewed the requests to
decide if any additional supporting documentation was required,
collection officers sometimes worked directly with Counsel,
bypassing the advisory review. According to Mr. Penny, the
revenue officer was dealing with another nominee NFTL on property
allegedly owned by petitioner in another location, so the revenue
officer had already established a direct path to Counsel. We
12
An ICS transcript is a case file transcript that is
maintained by the IRS to document case file actions taken by IRS
personnel.
- 30 -
find Mr. Penny’s testimony credible on the subject of advisory
review, and we note that such review was not one of the required
steps enumerated in the IRM. We hold, therefore, that the
Appeals Office did not abuse its discretion in determining that
the requirements of any applicable law or administrative
procedure have been met with respect to the nominee NFTL at issue
in this case.
A.3. Consideration of Collection Alternatives
Petitioner also contends that respondent erred by not
considering reasonable collection alternatives to respondent’s
nominee NFTL and disputes that the filing of the nominee NFTL
properly balanced respondent’s need for efficient collection of
taxes with petitioner’s concern that the collection action be no
more intrusive than necessary. Petitioner, however, did not
submit a completed Form 433-A, Collection Information Statement -
Wage Earner, or Form 433-B, Collection Information Statement -
Business, to document his claimed inability to pay. Even if
petitioner had submitted completed Forms 433-A and 433-B, the
disagreement between petitioner and respondent regarding the
extent of his ownership interest in the Claremore property
precluded any determination of petitioner’s actual ability to pay
the unpaid tax liabilities at issue.
We also note that petitioner did not offer any collection
alternatives that would adequately protect respondent’s need to
- 31 -
perfect a lien with respect to petitioner’s ownership interest in
the Claremore property. At the trial in this case, petitioner
had testified that the Claremore property would remain titled in
the name of his deceased mother. Under the circumstances
involved in this case, the nominee NFTL was a reasonable
collection procedure that enabled respondent to perfect a Federal
tax lien with respect to the Claremore property. We conclude
therefore that the Appeals Office did not abuse its discretion in
upholding the filing of the nominee NFTL.
B. Errors Not Raised at the Hearing
In an appeal from a notice of determination under sections
6320 and 6330, we ordinarily consider only those matters that
were raised in the hearing and/or considered in the notice of
determination. Magana v. Commissioner, 118 T.C. 488, 493-494
(2002); Miller v. Commissioner, 115 T.C. 582, 589 n.2 (2000). As
we stated in Magana v. Commissioner, supra at 493,
it would be anomalous and improper for us to conclude
that respondent’s Appeals Office abused its discretion
under section 6330(c)(3) in failing to grant relief, or
in failing to consider arguments, issues, or other
matter not raised by taxpayers or not otherwise brought
to the attention of respondent’s Appeals Office. * * *
Petitioner raised several issues for the first time in his
petition that were not raised in the hearing or addressed in the
notice of determination: (1) Whether the Appeals team manager
whose name appears on the notice of determination actually made a
determination as required by sections 6320 and 6330; (2) whether
- 32 -
Revenue Officer Baustert had the requisite authority to file the
nominee NFTL without the written approval of his direct
supervisor; (3) whether respondent abused his discretion by
filing a nominee NFTL after he had already caused an NFTL to be
filed against petitioner for 1993; and (4) whether respondent
abused his discretion by asserting a nominee theory with respect
to certain real property, the existence and ownership of which
was known to respondent at least 4 years before the nominee NFTL
was filed. With the exception of the issue in (1) above, which
challenges the adequacy of the notice of determination,
petitioner should have raised the above-listed issues with the
hearing officer at the hearing so that the Appeals Office could
address the issues in its notice of determination. Petitioner
did not do so, and, as a result, the notice of determination did
not address those issues. We decline, therefore, to consider
issues that could have been raised, but were not raised, at the
hearing and addressed in the notice of determination. Magana v.
Commissioner, supra.
With respect to petitioner’s challenge to the notice of
determination, petitioner offered no evidence at trial or
argument on brief to support his contention that the Appeals team
manager whose name appears on the letter portion of the notice of
determination did not make the determinations in the notice.
Moreover, petitioner’s argument misconstrues the notice of
- 33 -
determination, which consists of a cover letter and a summary of
the hearing officer’s determination regarding the matters
considered at the hearing. The Appeals team manager who signed
the letter portion of the notice of determination on behalf of
the Appeals Office refers to the determination made as “our
determination”. The summary attached to the letter bears no
signature and summarizes the determination made in petitioner’s
case. That summary is extracted verbatim from an “Appeals
Transmittal and Case Memo” that was prepared by Mr. Penny and
transmitted to the Appeals team manager, who approved Mr. Penny’s
determination on behalf of the Appeals Office. Taken in context,
the determination in question is one made by Mr. Penny and
approved by Mr. Penny’s supervisor on behalf of the Appeals
Office. Petitioner has failed to show that the determination in
question is not a proper determination under section 6330.
Conclusion
Based on the record before us, we hold that the Appeals
Office did not abuse its discretion in determining that
respondent’s filing of a nominee NFTL with respect to the
Claremore property was an appropriate collection action in this
case.
- 34 -
We have considered the remaining arguments of both parties
for results contrary to those expressed herein and, to the extent
not discussed above, find those arguments to be irrelevant, moot,
or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.